News Release

Hospital Geographic Expansion: The New Medical Arms Race?

New Full-Service Hospitals, Freestanding Emergency Departments and Acquisition of Physician Practices Key Strategies in Hospital Competition for Well-Insured Patients

Hospitals’ longstanding competitive focus on cutting-edge technology, niche specialty services and amenities to attract physicians and patients has set the stage for the next chapter in hospital competition—targeted geographic expansion into new markets with well-insured people, according to a study by the Center for Studying Health System Change (HSC) published in the April edition of Health Affairs.

The study found that many hospital systems are seeking well-insured patients beyond traditional market boundaries, both in prosperous suburbs or in nearby areas with growing, well insured populations.

Key hospital strategies to expand into new markets include building full-service hospitals, establishing freestanding emergency departments and other outpatient services, acquiring physician practices, and operating medical transport systems—all aimed at shoring up referral bases and capturing additional inpatient admissions, the study found.

“Whether these new hospital competitive strategies will raise costs, improve care  or both is hotly debated—payers and competitors contend such strategies will lead to higher costs, while hospitals assert the expansions will increase efficiency, increase access and improve the quality of patient care,” said HSC Senior Researcher Emily R. Carrier, M.D., M.S.C.I., coauthor of the study with Marissa Dowling, a former HSC research assistant; and HSC Senior Consulting Researcher Robert A. Berenson, M.D., also an institute fellow at the Urban Institute.

Funded by the Robert Wood Johnson Foundation and the National Institute for Health Care Reform, the Health Affairs study is based on HSC’s 2010 site visits to 12 nationally representative metropolitan communities: Boston; Cleveland; Greenville, S.C.; Indianapolis; Lansing, Mich.; Little Rock, Ark.; Miami; northern New Jersey; Orange County, Calif.; Phoenix; Seattle; and Syracuse, N.Y. HSC has been tracking change in these markets since 1996.

Other key findings from the study, titled “Hospitals’ Geographic Expansion in Quest of Well-Insured Patients: Will the Outcome Be Better Care, More Cost, or Both?” include:

  • In all 12 markets studied, hospitals pursued one or more types of competitive geographic expansions, including buying or building full-service hospitals or freestanding emergency departments, buying or establishing physician practices, and developing a regional presence through emergency medical transport systems.
  • Among hospitals using these strategies, the drive to pursue well-insured patients beyond traditional hospital market boundaries appeared to be heightened by the recession rather than blunted by it. Even as hospital leaders pursued layoffs and contract renegotiations to cut operating costs, they often described freezes in construction outside of their traditional market areas as being brief and temporary, if pauses occurred at all.
  • Some markets, such as Phoenix and Indianapolis showed evidence of all of the geographic expansion strategies, while others, such as Syracuse and Lansing, showed evidence of only one or two. All types of strategies appeared more common in markets where large hospital systems had or were pursuing significant employment of physicians and where service-line strategies—for example, cardiac or cancer care—were well entrenched.

“It is too early to tell what impact hospitals’ geographic expansions will have on patients’ access to care in different communities, the quality of care, and costs. In theory, hospitals’ expansion strategies could both increase and decrease health care spending…. Payers’ and policy makers’ most commonly cited concerns were that new and potentially unneeded capacity will raise costs. Hospitals frequently countered that their expansions are necessary and sometimes overdue responses to population shifts and that cost increases reflect their efforts to provide high-quality care, not the cost of financing their expansions,” the article states.

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The National Institute for Health Care Reform (NIHCR) is a nonpartisan, nonprofit 501(c)(3) organization created by the International Union, UAW; Chrysler Group LLC; Ford Motor Company; and General Motors. Between 2009 and 2013, NIHCR contracted with the Center for Studying Health System Change (HSC) to conduct high-quality, objective research and policy analyses of the organization, financing and delivery of health care in the United States. HSC ceased operations on Dec. 31, 2013, after merging with Mathematica Policy Research, which assumed the HSC contract to complete NIHCR projects.